The late 1990s Asian meltdown was caused in large part by South Korea,
Thailand, the Philippines, Malaysia and Indonesia's heavy reliance on
short-term foreign loans and openness to hot money -- a reliance that
came from following advice proferred by the U.S. Treasury Department,
the IMF and other international sources of "expertise."

When it became apparent in 1997 that private enterprises in those nations
would not be able to meet their payment obligations, international currency
markets panicked. Currency traders sought to convert their Asian money
into dollars, and the Asian currencies plummeted. That made it harder
for the Asian countries to pay their loans, and it made imports suddenly
very expensive.

There were other underlying causes for the financial crisis, including
overinvestment in real estate and other speculative and unnecessary ventures,
but almost everyone agrees the currency crash and financial disaster were
vastly disproportionate to the weaknesses in the Asian economies.

Having contributed in important ways to the development of the crisis,
the IMF proceeded to make it worse.

The IMF treated the Asian financial crisis like other situations where
countries could not meet their balance of payment obligations. The Fund
made loan arrangements to enable countries to meet foreign debt payments
(largely to private banks in these cases) on the condition that the recipient
countries adopt structural adjustment policies.

But the Asian crisis differed from the normal situation of countries
with difficulties paying off foreign loans. For example, the Asian governments
were generally not running budget deficits. Yet the Fund instructed them
to cut spending -- a recessionary policy that deepened the economic slowdown.

As former World Bank Chief Economist Joseph Stiglitz explains in a New
Republic article, "I thought this was a mistake. For one thing, unlike
the Latin American nations, the East Asian countries were already running
budget surpluses. In Thailand, the government was running such large surpluses
that it was actually starving the economy of much-needed investments in
education and infrastructure, both essential to economic growth. And the
East Asian nations already had tight monetary policies, as well: inflation
was low and falling. (In South Korea, for example, inflation stood at
a very respectable four percent.) The problem was not imprudent government,
as in Latin America; the problem was an imprudent private sector--all
those bankers and borrowers, for instance, who'd gambled on the real estate
bubble.'

The Fund also failed to manage an orderly roll over of short-term loans
to long-term loans, which was most needed; and it forced governments,
including in South Korea and Indonesia to guarantee private debts owed
to foreign creditors.

In retrospect, even the IMF would admit that it made things worse in
Asia.

Malaysia stood out as a country that refused IMF assistance and advice.
Instead of further opening its economy, Malaysia imposed capital controls,
in an effort to eliminate speculative trading in its currency. While the
IMF mocked this approach when adopted, the Fund later admitted that it
succeeded. Malaysia generally suffered less severe economic problems than
the other countries embroiled in the Asian financial crisis.

The result of the Fund's bungling has been intensified and needless human
suffering.

In South Korea, a country whose income approaches European levels, unemployment
skyrocketed from approximately 3 percent to 10 percent. "IMF suicides"
became common among workers who lost their jobs and dignity.

In Indonesia, the worst hit country, poverty rates rose from an official
level of 11 percent before the crisis to 40 to 60 percent in varying estimates.
GDP declined by 15 percent in one year.

In September 1998, UNICEF reported that more than half the children under
two years old in Java, Indonesia's most populous island, were suffering
from malnutrition.

At one point, the food shortage became so severe that then-President
B.J. Habibie implored citizens to fast twice a week. Many had no choice.